Central banks unveil 2nd ABF structure<\/p>\n
Eileen Ng, Agence France-Presse, Kuala Lumpur<\/p>\n
Asian central banks on Thursday unveiled the initial structure of
\na planned second Asian Bond Fund (ABF) to invest in debt
\nsecurities denominated in local currencies as part of efforts to
\nboost regional financial cooperation.<\/p>\n
They gave no timeframe for when it would be launched.<\/p>\n
In a statement released here, the 11-member Executives'
\nMeeting of East Asia and Pacific Central Banks (EMEAP) Group said
\nit had completed an initial study on ABF2 which would be designed
\nto facilitate investment by public and private sector investors.<\/p>\n
ABF2 followed the successful launch in June 2003 of the first
\nUS$1 billion ABF which is was now fully invested in U.S. dollar-
\ndenominated regional bonds and marked another important milestone
\nin regional cooperation, it said.<\/p>\n
Under a recommended preliminary framework, it said ABF2 would
\nconsist of two components -- a Pan-Asian Bond Index Fund (PAIF)
\nand a Fund of Bond Funds (FoBF).<\/p>\n
"It is intended that the ABF2 funds will be passively managed
\nagainst a set of pre-determined benchmarks, covering local-
\ncurrency bonds issued by sovereign and quasi-sovereign issuers in
\nEMEAP economies," the statement said.<\/p>\n
"The EMEAP Group believes that the developmental impact of the
\nABF2 will be significant. ABF2 will promote the development of
\nindex bond funds in the regional markets and at the same time,
\nenhance the domestic as well as regional bond market
\ninfrastructure."<\/p>\n
EMEAP groups Australia, China, Hong Kong, Indonesia, Japan,
\nKorea, Malaysia, New Zealand, the Philippines, Singapore and
\nThailand.<\/p>\n
It said the PAIF, a single bond index fund investing in local
\ncurrency-denominated bonds in EMEAP economies, would act as a
\nconvenient and cost-effective fund for investors seeking a well-
\ndiversified exposure to Asian bond markets.<\/p>\n
The FoBF is a two-layered structure, with a parent fund
\ninvesting in a number of country sub-funds comprising local
\ncurrency-denominated bonds in EMEAP nations, it said.<\/p>\n
The FoBF sub-funds are aimed at providing local investors with
\nlow-cost and index-driven investment vehicles and at the same
\ntime giving international investors the flexibility to invest in
\nthe Asian bond markets of their choice.<\/p>\n
"In determining the size of ABF2, EMEAP members will be
\ncareful to limit the size of the total investment so that it will
\nnot have any crowding out effect on private sector investors," it
\nsaid.<\/p>\n
Steps will be taken to improve the market infrastructure by
\nminimizing the legal, regulatory and tax hurdles in their markets
\nto facilitate the creation of fixed income products in the
\nregion, the statement said.<\/p>\n
The group said it would consult market practitioners on the
\nstructure of the ABF2 and gave no indication on when the fund
\nwould be launched.<\/p>\n
The first ABF, designed to defend the region against currency
\nspeculation and capital flight, was invested in high-grade debt
\nsecurities and officials have said the second ABF would be
\ntargeted at countries whose ratings were under investment grade,<\/p>\n
The Monetary Authority of Singapore said it was pleased with
\nthe progress of ABF2.<\/p>\n
"Together with initiatives proposed in other regional fora,
\nABF2 will broaden the depth and liquidity of Asia's bond markets,
\nand provide investors with an additional means to invest in
\nAsia," it said.<\/p>\n
Malaysia's central Bank Negara said ABF2 would be a
\n"significant initiative" towards promoting the development of
\nbond markets in the region.<\/p>",
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